Fonterra reassures of 'strong' China dairy demand

Fonterra eased concerns over ideas of waning Chinese orders blamed for a retreat in world dairy prices, saying "demand still appears strong", and will continue to outpace the rise in domestic milk production.

The New Zealand dairy giant, the world's top milk exporter, acknowledged that China's milk production "has shown signs of recovery" in the first three months of 2014, following market talk of an increase of about 5%.

However, demand by China, the top importer, is growing even faster Fonterra said, quoting Rabobank estimates that the country has a production deficit of 10bn litres, and growing.

"It is clear the supply gap is widening, which could open the door for more imports," the co-operative said.

'Imports have surged'

"Dairy imports into China have surged in the past six months," Fonterra said, pegging volumes at nearly 2m tonnes, equivalent to about 16% of global imports.

"Growth in imports of dairy products into China were up 39% for the 12 months through to February 2014."

In Russia too, in which US Department of Agriculture staff issued some relatively cautious import forecasts last week, "demand still appears strong".

The two countries between them account for some 27% of world dairy imports, up from 6% in 2008, with milk powder driving Chinese orders, and cheese behind the jump in Russia's volumes.

Overall world dairy trade, as measure by exports, rose by 3% to 14.2m tonnes in the year to February.

'More milk available'

The comments came as Fonterra, which processes the vast majority of New Zealand's milk, revealed an 8.3% rise to 1.58bn kilogrammes of milk solids in its volumes for 2013-14, which for the season ended on May 31 in the country.

North Island led the increase, with an 8.9% rise, while South Island collections rose by 7.3%.

The co-operative revealed further recovery in volumes at its smaller Australian operations too, with a 12.6% rise in April collections lowering to 1.7% the decline in the first 11 months of 2013-14, which in Australia ends this month.

With output rising strongly in the European Union too, by 5.8% in the first three months of 2014, "there is currently more milk available for the international market to absorb," Fonterra said.

However, US production growth, at 1%, is behind official forecasts.

And, in South America, the co-operative also highlighted a slowdown in Uruguayan milk production "due to challenging climatic conditions", while output remained flat in Argentina, which "faces a range of challenges including a weakening currency, higher manufacturing costs and a lower milk price".

Prices at GlobalDairyTrade, the twice-monthly dairy auctions run by Fonterra, have fallen by some 25% since early February.

Russia milk output hopes drop, bucking world trend
UN notes grain price watershed as crop hopes rise
Dairy prices drop, matching longest fall on record
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events